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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934

KAYDON CORPORATION
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (734) 747-7025

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Common Stock Outstanding at July 22, 2002 – 30,476,818 shares, $.10 par value.

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KAYDON CORPORATION FORM 10-Q

FOR THE QUARTER ENDED JUNE 29, 2002

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ITEM 1. FINANCIAL STATEMENTS
KAYDON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS

See accompanying notes to consolidated condensed financial statements.

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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

See accompanying notes to consolidated condensed financial statements.

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KAYDON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying notes to consolidated condensed financial statements.

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KAYDON CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(1)		The accompanying unaudited consolidated condensed financial statements of Kaydon Corporation and subsidiaries (“Kaydon” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included, and such adjustments are of a normal recurring nature. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2001.
		The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets.” This pronouncement amends the accounting for goodwill and intangible assets. SFAS No. 142 no longer permits amortization of goodwill and indefinite-lived intangible assets. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. In addition, SFAS No. 142 establishes a new method of testing goodwill for impairment by using a fair-value approach. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, Kaydon, as required, adopted the pronouncement in the fiscal year beginning January 1, 2002. Please refer to Notes to Consolidated Condensed Financial Statements (Note 9) in this quarterly report on Form 10-Q for additional information on the implementation status of SFAS No. 142 at Kaydon.
		Also, the Financial Accounting Standards Board has issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” The pronouncement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. Companies are required to adopt the pronouncement in their fiscal year beginning after June 15, 2002. The Company is currently assessing the effect of the new pronouncement, but at this time can not estimate the impact, if any, on the consolidated financial statements.

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(2)

Inventories are summarized as follows:

(3)		Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events, and from circumstances involving nonowner sources. For the Company, comprehensive income consists of net income, foreign currency translation adjustments, minimum pension liability adjustments and unrealized loss on derivative financial instruments. Other comprehensive income, net of tax, was approximately $3.3 million and $0.1 million, resulting in comprehensive income of $5.7 million and $6.6 million for the quarters ended June 29, 2002 and June 30, 2001. On a first half basis, other comprehensive income (loss), net of tax, was approximately $2.5 million and $(2.1) million, resulting in year to date comprehensive income of $10.8 million and $14.7 million for the first halves ended June 29, 2002 and June 30, 2001.
(4)		The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share from continuing operations for the periods presented.

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		Options to purchase 125,850 shares of common stock at prices ranging from $28.35 to $33.3125 per share were outstanding during the second quarter of 2002, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares during that period. Options to purchase 115,300 shares of common stock at prices ranging from $26.01 to $33.3125 per share were outstanding during the second quarter of 2001, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares during that period.
		In accordance with the provisions of Statement of Financial Accounting Standards No. 128, “Earnings Per Share”, potential dilutive shares resulting from stock option plans used in the calculation of dilutive earnings per share are based on an average of the potential dilutive shares resulting from stock option plans for the periods presented.

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(5)		The Company operates through individual operating units for which separate financial information is available, and for which operating results are evaluated regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance (“operating segments”). The Company’s operating segments manufacture complex and standard metal products that are sold primarily to equipment manufacturers and other assemblers or integrators. Certain of the operating segments have similar long-term average gross margins and all of them exhibit other common attributes, including the nature of the products and production processes, distribution patterns and classes of customers. As a result, based upon current and expected future long-term financial performance, the Company aggregates its operating segments into four reportable segments. Prior to the fourth quarter of 2001 the Company aggregated its operating segments into a single reportable segment referred to as Custom-Engineered Products. Due to changes in economic conditions affecting certain operating segments, during the fourth quarter of 2001 the Company changed the way it aggregates operating segments for purposes of reporting segment information. Prior year amounts have been reclassified to reflect the current year presentation.
		The Company has three continuing reportable segments and one discontinued reportable segment engaged in the manufacture and sale of the following: